Lower income? The 2021 earned income tax credit can increase your benefits

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Qualifying for the income tax credit earned on your tax return is like hitting the jackpot in the tax credit world. It is the most popular credit for low and moderate income earners and can immediately put more money in your pocket. If you feel left out of the tax breaks enjoyed by the richest people, the 2021 increase in labor income and credit ceilings is your chance to cash in on the tax code.

Tax credits are a real treasure on your tax return

The goal of each taxpayer is to obtain more tax credits and deductions during tax season to reduce the amount of taxes owed. Tax credits are the most popular option, providing a dollar-for-dollar reduction in income tax owed to federal and state governments. For example, if your tax bill is $ 5,000 and you receive an Income Tax Credit (EITC) of $ 4,000, your tax bill is automatically reduced to $ 1,000.

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What makes the earned income tax credit so attractive is that it is a refundable credit for people at the lower end of the income scale. Unlike a non-refundable tax credit which only allows you to claim a refund up to the amount you owe, a refundable tax credit can mean extra money in your pocket when you file your income tax returns. . If your tax bill is only $ 2,000 and you receive $ 3,000 from EITC, you walk away with a refund of $ 1,000.

Deepen qualifications

To be eligible for this coveted tax credit, you must have earned income and meet the requirements for those who do not have a qualifying child or have a child who meets the qualifying child rules. You must also have a Social Security number and cannot be another person’s qualifying child. If you file a marriage declaration separately or if you do not file an income tax return, you are not eligible for the EITC.

Contrary to popular belief, you can qualify for EITC as a single person without children. There is an important caveat: age matters. You must be at least 25 and under 65 at the end of the year if you do not have an eligible child. Make sure that you have lived in the United States for more than six months and that you are not considered a dependent or eligible child on someone else’s tax return.

An overview of the EITC 2021 benefits

If your income is too high, you will not be eligible for EITC allowances. On the other hand, you must have total earned income (from employment or self-employment) of at least $ 1 and your investment income must be $ 3,650 or less for the year.

If you meet the income requirements, you will receive a credit based on the number of eligible children you have. The maximum amount of credits for those who do not have eligible children is $ 543 (up from $ 538 in 2020), one eligible child is $ 3,618 (up from $ 3,584 in 2020), two eligible children is $ 5,980 (up from $ 5,920 in 2020), and three or more eligible children is $ 6,728 (up from $ 6,660 in 2020).

Below is a table showing the maximum income amounts based on filing status and number of eligible children.

2021 maximum adjusted gross income amounts

If the tax return status is …

No eligible child

1 eligible child

2 eligible children

3 or more eligible children

Single, head of family or widower

$ 15,980

$ 42,158

$ 47,915

$ 51,464

Married spouse filing

$ 21,920

$ 48,108

$ 53,865

$ 57,414

Data source: IRS.

In addition to claiming this one-of-a-kind tax credit, there is another bonus that will put a smile on your face during tax season: file your income tax returns for free! Typically, if you are in the EITC income bracket, you can also use the IRS free tax reporting software and services and double your savings during tax time.

Don’t miss your credit

Many people overlook the earned income tax credit because they automatically assume that they are not eligible for it. If you are reading this and realize that you were eligible for EITC in previous years, it is not too late to apply for your credit. You can go back to the last three years of tax returns and claim your credit if you meet the guidelines for each year.

To find out if you are eligible, see the EITC Assistant on the IRS website to determine your eligibility. It could mean thousands of dollars more in your pocket.

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